Animal Spirits Podcast - Bubbles Are Forever (EP.203)

Episode Date: May 12, 2021

On this week's show we discuss the huge miss in the job's report, why stock market valuations are so hard to use today, why we need to build more houses, the insane spike in lumber prices, the downfall of growth stocks, the most intimidating movie characters of all-time and more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by our friends at Y Charts. One of the best parts about Y Charts is the fact that they're constantly updating their data sources. So Michael and I have actually gone to the team at Y Charts occasionally and said, hey, do you have this series? We can't find it. And they will figure out a way to add it or give us a tool that allows to edit ourselves if we have it. Still waiting on scam coin. One of the pieces that they apparently just added, which is interesting because we were talking about it last week, is they added the Masterworks, post-war and contemporary art index. And this goes back to the late 80s. And Michael, you brought

up a point last week on one of our podcasts saying that the art world had a huge crash following the Japan bubble, right? So I found the numbers and they have the year-over-year changes for this Masterworks Art Index. In 1990, which is basically when Japan topped, art was up 155% that year. The very next year after Japan topped, the art index was down 57%. That bubble then, in Japan just wrecked so many different things and also lift them up, obviously. So that's a new one you can view on Y charts. Again, as always, go to Y charts. If you don't have a subscription yet, tell them Animal Spirits sent you and you can get 20% off your initial subscription. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael

Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's wealth management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain positions in the securities discussed in this podcast. On Friday, we got the job support and it sent the financial world spinning for a second there. It was the biggest miss relative to expectations since at least 1998, thanks to bespoke.

And I actually, speaking of bespoke, I was reminded of this. I was thinking about this. Like, so George Perks tweeted, because there was a lot of like, huh? When this came out, like, wait, it was such a big, like, what the hell just happened? So George tweeted, four to idle, half of its production, auto manufacturing worker decline was more than the total decline in manufacturing employment. Just one of the massive ways of extremely convoluted numbers in this report. And Ben Castleman did a long Twitter thread. And so many people did. And I was reminded of the benefit of Twitter. For most people who just aren't economic experts, like I'm certainly not a person to rip into this report and find out what's going on. You can lean on people like this who actually know what the hell they're talking about. It's pretty cool. You can give a little context beside the headline number.

I mean, some people are saying like I guess a million jobs was expected. Some people are saying, what if it's a million and a half or two million? And then we went the other way and it was. And what was the number? 200,000, I think. So a lot of people were surprised about this and trying to figure out what exactly happened. So there's a bunch of theories. So one of them is the unemployment insurance worked too good, and that transition is going to take longer than people think. I mean, that's obviously part of it. If you say that's not part of it, you're not paying attention.

Like, that has to be part of it. 42% of people currently receiving benefits, I think according to a Chicago study, are making more out of work than they were in work. That will be done, I think by the end of the summer, July or August, September, that stuff is gone. You can kind of test that theory. It's not like that's here. If you're only people that are saying that's not part of it, that has to be part of it. That has to be part of it. But also, I mean, there's other things like, think about the lack of daycare in schools for people. That's still an issue. There's people that are nervous about working certain jobs in a pandemic. And also, wages probably need to rise in a lot of cases. I thought this was from the Washington Post was one of the better theories here. And so this is from Heather Long. And she called it the great reassessment. And she says, like, a way to look at this is, obviously, there's a lot of nuance here. But she's like, people are hesitant to go back to work, obviously, because the vaccine stuff. But here's one of them. A number of women employed or looking for work fell by 64,000. So that's a

child care thing. I think that is a real part of this. She also said another one from anecdotal and survey stuff is that people want to do something different with their lives than they did during the pandemic. She said, and I quote, the coronavirus outbreak has had a dramatic psychological effect on workers and people are reassessing what they want to do and how they want to work, whether in an office, at home, or some hybrid combination. I don't think you can discount that fact. It's probably some of all these. You can't just point to one factor, but I think this is something you have to consider is that maybe we were just naive to think there's going to be this seamless handoff between, okay, paying people while they're unemployed, a living wage,

and then handing off to this roaring 20s thing that's just going to take the baton and run of it and not having this transitional period. I think that was probably naive on some people's part to assume that was just going to happen and this boom was just going to take off unimpeded with no transition period. I wonder what next month this looks like. In other words, is this noise? We'll find out, I guess. And you and I have talked in the past about how places like Target and Best Buy and Amazon now have essentially $15 minimum wages. What if a lot of those people who were working in restaurants and service workers and some of these other jobs that had been let go, what if they now just found different jobs like that and they realize, wait, I get paid better here and I have

better benefits or whatever it is? You could have had a realignment of people working in different industries. I don't know. One more number here. Since we haven't done a good survey now, Pew Research center survey this year found 66% of the unemployed had seriously considered changing their field of work a far greater percentage than during the Great Recession. I do think that there is something to this fact that people have taken the last year. Life isn't upheaval. What am I going to do? And we said that on one of the last podcast. And I got a few DMs from people saying, hey, one guy said, I learned how to code and completely changed my career from what I was doing throughout this pandemic. That's something to that. Bill McBride has this chart where he shows percentage of

permanent job losses in 2001, 2007, and 2020. And I don't know why they call it permanent because some of these come back, obviously. So he shows, like, especially following 2007, you had this drop that took a long time to come back. And he shows it by months after the period. We've basically just kind of flatline now coming back. So that number went straight down and it's flatline and hasn't really been going back up yet. I think people wanted to see the initial V just happen right away. Maybe it's not going to happen. Well, we did see the V. I think the reason why this is permanent is because if you included temporary layoffs, this number would be way, way, way worse. True. Okay. I get it. So that's just people who actually got

fired. That makes sense. This is the kind of thing that was such a headline-grabbing number that I heard from non-finance people about this one. Some questions saying, hey, I saw this. What is going on here? I think any time you deal with something like this where it's jobs and inflation, those kind of things, on the Today Show today, my wife always has that on the morning. They were showing inflation in the grocery store. Gas station and grocery store. Those are the places that the normal people, not people like us that pay attention all this stuff all the time, normal people realize like, oh, wait, there is inflation going on, that kind of stuff. So I feel like this way. This was with the job stuff was something that people were paying attention. It saw the number and it

seemed surprising to them. Gas is definitely creeping up. I think I paid almost three bucks. It was around $65 to fill up my car. And I was like, huh, I think that's a wild spend. It's the highest it's been in a while for sure. We should have filled up tanks and put them in our backyard when oil was at negative $37 a barrel. Newbwell move. Yeah. Totally missed the ball there. Walser Journal had this piece about how millions of people are employed. And it's still, I think, eight million people, give or take. Eight million fewer jobs today than pre-pandemic. Yeah. What if some companies, I think this happened after 2008, too, have just figured out they don't need as many people. They've figured out people can work from home. Maybe some of the people that they had

doing certain jobs at the office aren't needed as much anymore. There could be some of that where companies have just become more efficient. But the Wall Street Journal showed the changes in job openings. And like in manufacturing, construction and retail, the changes in job openings since February 1st, 2020 are up like 50, 75%, 25% like big job openings. Tons of jobs. Hospitality and tourism is finally coming back after a huge drop. It was down like 70%. But the number of job applications, so March job openings are up 34% from January 2020. That's before the pandemic. That's a big number. Meanwhile, the number of job applications is down 13% from its pre-pandemic level. So you have all these job openings, but not nearly as many people applying for them.

Again, it's probably going to be hard to go from a standing position to like zero to 60 on this stuff. And I'm sure a lot of people were assuming would happen. Neil Irwin talked about it, and he talked about the fact that he said, these numbers are consistent with the story that many business leaders are telling of severe labor shortages that demand has surged back, but employers cannot find enough workers to fulfill it, at least not at the wages that are accustomed to paying. And that's obviously part of it is the wages. but don't you think this is still about a good as we could have expected in terms of outcomes from this stuff? The worry right now is that we don't have enough supply of certain items, but we have way more demand. Isn't the opposite a worse situation where we have a supply, everything's ready to go, you can buy a house if you want, you can get all this stuff that's in short supply,

but there's no demand for it from consumers? Don't you think it'll be easier to react to this than the opposite? If there was a total lack of demand from consumers, that's a bigger problem in my eyes and too much demand. Absolutely. The supply issues will get resolved. I think in one way or another. I guess the question is, what damage do they do in the meantime? Yes, I agree. I think corporations and companies will adapt. They will pay more or they'll change jobs around or something will or lead times will happen or they'll raise prices. All these things are options that you don't really have as many options if there's no demand. And here's another thing. This story is making its way around finance Twitter last week. And this is from some Biz Journal article in Pittsburgh. I'm going to read you the first couple of

paragraphs of this. So it says as March Drudeau closed, Clavon's ice cream parlor in the strip district in Pittsburgh, found itself without enough workers for the upcoming spring and summer rush, didn't even have enough workers to open its shop seven days a week. Then on March 30th, the parlor announced it would more than double the starting wage from $7.25 an hour to $15.

A scoop that seemed to captivate workers throughout the region and one that entered a significant amount of social media attention. They interviewed the general manager and said it was instant overnight. We got thousands of applications that poured in. It was overwhelming. People were coming in the next day and the news broke. They were coming in filling out applications. It was doing interviews on the spot. Maybe a lot of restaurants feel like, hey, we've been totally screwed for the last year. Shut down and things have been uneven and not fair to us. So maybe it's

going to be harder for some of those places to do this and raise their wages like they have to, but that's obviously part of it, right? People are saying, I'm not going to go back to this stuff. If I'm working these hard, long hours and it's not easy and I'm being on the front line and you're going to have to pay me more to do it. That can help, right? Maybe this is how we get higher wages. Greg Ipp had a long piece in the journal. I guess the title is not really relevant. What happens to stocks and cryptocurrencies when the Fed stops raining money? So in the article, they showed the price to earnings ratio of the S&P 500 based on trailing 12-month operating earnings. And I don't know that this is a chart crime, but it's very misleading. What it's showing is that the PE over the last 12 months

have spiked. And one of the main reasons is because the E has gotten decimated. This happened in 2009, where earnings fell off a cliff, and then it rebounded. Another way to look at this is, okay, so is this chart saying that stocks were very attractive in 2013? Because it was trading at 15 times trailing 12. I don't remember anybody saying stocks were cheap in 2013. In fact, I remember a lot of people saying stocks were very expensive. Well, this is why all these valuation things need context. So you look at it now and it's higher than it was in the late 90s, even you say, wait, that was the most overvalued of all time. So obviously, the earnings are going to play catch-up, and it sounds like, based on estimates,

earnings are going to hit records again already in 2021. So this would seemingly go down unless stocks continue to hit out of the park, I guess. This one surprised me. So the S&P now trades at 22 times forward estimates. A level only exceeded at the peak of the dot-com boom in 2000, because that doesn't sound too high to me. Given where interest rates are, given that the economy, well, I was said the economy is roaring, even though last week's job supports would indicate otherwise. But that doesn't seem like that high, does it? Have I just gotten used to high earnings ratios? Yeah, well, so you wrote a piece.

I think, didn't you two years ago say you're retiring from ever writing about Cape again? I got a whole date of that. Yeah, it's been a few years. Okay, statute of limitations. You said, this is why all evaluations are tough and nuanced and context. You said the Cape ratio since 1990 has been above its long-term average 97% of the time. Doesn't it seem like it's almost impossible to use any of these historical evaluation metrics anymore? Yes, it does. Yes, it does. I'm conflicted here because on the one hand,

the Cape ratio has been garbage as an indicator for the last few years, which is fine. You know, it's long-term in nature. Less few decades even, not just years. But when you have a crash like you did in the GFC and the Cape ratio only goes below its long-term average for like two months, then maybe you have to put this into context and say, okay, maybe the nature of this thing has changed over time. In March 2020, at the bottom, we were barely below 25 for a second. So I don't know that we have to pay such careful attention to historical averages with this

thing. That being said, 37 times, not cheap. It's still pretty high. So I want to read this from William Bernstein from a Barron's article. So they asked him, what do you think about stocks going forward from here? And he said, I can tell you stock returns are going to be lower than they've been for the past three decades, annual returns are going to be in the range of four to six percent nominal over the next several decades. He's probably pretty close to being right, especially from

current levels. And he said, I can't tell you what they do over the next decade. That's too short of time. It's entirely possible over the next 10 years. We'll see stock returns at 10 or 15 percent annualized. And it's entirely possible. We'll see zero percent returns. I totally agree with this. That range makes sense. Like, you could say, oh, it's crazy. Valuations are way too high. It's impossible. We could still see 10 percent returns from here. That's not out of the realm of possibilities. For the next 10 years, it's possible. I'm not picking. I don't think 15 percent returns for the next 10 years is possible. Okay, I think it's totally possible. There are scenarios where that is definitely possible. You would have said the same thing in the last 10 years.

That's true. Yes, I would have. I totally would have. Think about someone in 1989 or 1990. You just had 18% returns in the 1980s. You'd say, there's no way in hell we're going to have that again. Guess what happened over the 90s? And things just went to the stratosphere in terms of valuations and everything. And back then, interest rates were 7, 8, 9%. They're 1% now. Howard Stern today was talking about some report, I forget, but how bleak the future is and the challenges that we're going to face in the coming decades. And I was thinking it's weird because things simultaneously, like, and maybe this is always the case, but the future in some ways seems so bright, technological breakthroughs that we're going to have, medicine, all that sort of thing. And man, like society-wise, like breakdown of institutions and norms seems like so freaking depressing. I can see that. Part of me thinks, yes, things are really bad in certain areas these days. The other part of me thinks we have more time to worry about them. And that's actually a sign of progress that in the past people didn't have time to sit and worry about the kind of stuff we have to worry about. I can see it both ways. They also asked Bernstein. They said, okay, if the stock market is highly priced and it's going to deliver below our returns, are there places that are more attractive right now. He said, no. The expected returns are crummy, but the equity risk premium over bonds is about the same. It's usually about four or five percent. That's probably where you're going to get today. Even 6% returns over 30 years, let's call it. That's like a 500% gain almost, 475%.

I mean, you can get that in Dogecoin in three days, I guess, but that's still not a horrible return if you're able to take it the whole time, long term. This is apples and oranges, but I think you need some context. Because a 12,000 percent gain, like, what does that even mean? Since 1988, which is about 33 years, Berkshire Hathaway has had a total return of 12,000 percent. Doge. By the way, it's obviously dog e-coin, right? It's an e-coin. It's dog e-coin. Okay. You agree? I don't know. Oh, okay. They should have just made it easy and called it dog coin. It would have been easier. I think people do call it doggy coin. But anyway, the point is. Doge is up 12,000 percent of your date.

It took Warren Buffett. It took Berkshire Hathaway 33 years to do those kind of numbers. Did you even watch Elon Musk on Saturday Night Live? I didn't. I don't watch Saturday Night anymore. I just, I'll catch the clips now the next day, but I don't care enough. I did watch SNL, which was obviously a staple of our childhood, like the Farrell years, but it's lost relevance, right? Obviously, like, I didn't recognize 80% of the cast. It's had dark periods over the years, but it seems pretty low right now. People always say, like, every generation has always complained about SNL not being funny anymore, but I think you can make a case now that it's not nearly as relevant as it once was or as big.

I thought Elon had some good zingers in the opening monologue. Don't you think, though, that them bringing him on is showing that they're kind of desperate? The whole thing felt like a publicity stunt to me in a lot of ways. Like, SNL needed him more than he needed them. Oh, for sure. He's a lightning rod, though. I think it made sense to have him on. One more thing.

So last week I said, I don't think we're in a bubble, even though I think that stocks are highly valued to state the obvious. And there are bubbles everywhere, Dogecoin, for example. But there's a big difference between saying stocks are on the high end evaluation, expect lower returns. Oh my God, it's a bubble, go to cash. You can't invest that way. That's ludicrous. But Bernstein was asked about bubbles. They asked him, are bubbles inevitable? And I love this answer. He said yes. And Bill Bernstein, by the way, is a, can we call him a pioneer, I guess? He created, like, the stuff that we talk about years before we did. Simple portfolios.

Yes, common sense and simplicity. And he's like an investment hero of mine. Yes, he's certainly a legend in our eyes. Okay. He said, uh, bubbles are the inevitable. outcome of human nature. The interviewer said, what part of human nature? And he said, we are the ape that imitates. So enough people around us become euphoric about stocks. That euphoria gets critical mass and spreads throughout humanity. We are the ape that seeks status. And what better way to get status than to get richer than your neighbors? And right now, man, that like perfectly describes what's going on with Dogecoin and a lot of cryptos. And part of it isn't even the neighbor stuff. It's like, it is more of a status thing.

The crazy part to me is that some of the richest people in the world and most high status people are also verified charlatans. We've talked about this a little bit. Usually you'd have a separation of really highly successful people and entrepreneurs and then you have charlatans over here that are just trying to get their little piece. Now because of social media, you're mashing it all together. And you're having these Mark Cuban and Elon Musk and Dave Portnoy who have these one traits on one hand where they're amazing entrepreneurs and promoters and they can deliver their ideas and their thoughts. But they also have this charlatan side of them, which is it's very, very, hard to wrap your head around it. And I think that is only going to get way, way worse than the

years ahead. Say what you want about Portnoy. I don't know how he's a charlatan. Well, maybe Charleston's the wrong word for it. He's like the promoter of all promoters. A shameless promoter. That's fair. I'm just throwing in the fact that you have these promotional elements that you just didn't have in the past. Go read a story about like a guy like John Rockefeller, who was just this quiet. He was like an anti-promoter. Yes, totally opposite. He would sit in the corner. Yeah, he would take his naps every today. It's totally different now with these people. The CEOs of yesteryear. Is that a word? That's a word, right? The past yesteryear. They were not like the CEOs of today. That's all I'm saying is that it's a totally different world. And when you get a taste of the spotlight and guess what? Like

Bernstein said, we're all humans. Even when you have billions of dollars, you still crave that adulation and attention on social media. It's those sweet, sweet likes and retweets. I know. It's, yes. And guess what? We're the same way. You have all the money in the world. What more could you want? I want some adoration. I want people to know knowledge. This is a weird turn, but someone said the other day after the Bill and Melinda Gates stuff came out,

six of the top ten most richest people in the world or seven of the top ten are divorced. I don't know. It just gets back to the fact that, like, there's no perfect number or perfect level for anyone in terms of finding the balance of money and power and adulation and happiness and a happy life. Like, it's impossible. No matter where you are. you're never going to find that spot to go because I think no matter how far you move up the ladder, there's always like you're getting to a point where you see someone else that's

always doing better in some way. Have you ever been in a position where somebody says to you, looks you in the face, he goes, what's your number? I hope not. Have you? No, of course not. That sounds awful. But that's the thing.

Your number is always going to be changing. It's a moving target, much like the CAPE ratio. What's your number? More. Yes, for everyone. All right. this is my favorite chart of the week. So the Arc Complex is having a bit of a hiccup. I think it's down over 30% from its highs, which, all right, congratulations to everybody that

didn't buy it. This is the most beloved bear market of all time for a fund, right? Everyone wanted to see this. Shark and Freud. All right. So this is my favorite chart of the week from Dave Wilson. Yeah, he does like a chart of the day for Bloomberg. Yeah. He showed ARCS flagship E-TF, which is ARK, tracks an index of money losing U.S. tech companies. The Goldman Sachs Nonprofitable Tech Index. Wow. This is a chart. Here's my one potential. So these two lines are following each other almost perfectly. Here's my problem. What I want to ask about this, though. How long has this index been around? Because did they just back into this index and create their own Arc Index more or less? I don't think so. I think this is not a new index. I can't

prove that. But I feel like I've seen this. It's identical. As of right now, Arc is down 33%. And I remember you telling me, hey, I had a conversation with someone, and what do they say? Arc basically can't lose. It's impossible to lose. I mean, that was the problem. By the way, I definitely just went like this when this person said that. Right. I wasn't about to, like, destroy this person. That's not my thing, but they can. But if you're earning the types of return that she's earned over time, these drawdowns like this are normal. Yeah, so this is part for the course, big freaking deal. The craziest thing about it is she's on 33% in Arc's flagship fund. How much is it up over the last year? Let's see, one year period. 80%.

Still pretty decent number. Now, of course, not everybody bought it a year ago. So if you bought at the top, you're down 30%. Okay, big deal. So people shouldn't have bought at the top, but that's life. I think the interesting part about this growth thing, growth stock's getting killed, the S&P 500 just hit its 26th new all-time high of the year on Friday. So the Dow and the S&P are doing just fine without these growth companies going crazy. The equal weight version, an RSP, all-time highs. Everything is working except really highly overvalued tech stocks. Yeah, which is, I mean, this is the kind of thing where you think, okay, these tech stocks roll over, fall out of bed. And even a lot of the big tech giants we talked about last week

that were just reported numbers just out of this world have all kind of fallen still. Those stocks have given back some money and the market doesn't care. Somebody told you a year ago, Zoom is down 50%, Tel Docs down 50%, Palaton, Spotify, whatever. Apple, massive beat, and it's down 10% from its post earnings. They said to you, what do you think the market's doing? You would say, I don't know, bear market. No, markets are all-time high. All-time highs. And the Dow and the boomer stocks and value is ruling the day. It really is. So we talked about how it was hard for a handoff to happen in the economy. I guess the handoff is much easier in the markets, at least for now, where you saw the growth

to value handoff happen way, way easier than we're seeing the labor market stuff happen. Yeah, It's wild. Okay. You know what else is getting wrecked? Spacks. Look at SPAK, the SPAC. Okay. Creamed.

That word is not used enough to describe something bad happening. Was that like an early 90s word? This got creamed. Yeah. Okay. Yeah. So that one's down 32% as well. Again, all this junkie stuff that people are saying, just wait until this stuff gets,

it's come up and then we'll see. By the way, we haven't spoken about, actually two things I was reminded of. Speaking of early 90s, the answering machine? Okay. Remember that? An answering machine? Yeah. Of course you do. When do you think the term like voicemail came into the lexicon?

Oh, that's probably when cell phones came out, right? It just seems like we've had voicemail forever in anyway, the good old days. I don't remember that transition from answering machine to voicemail. That was seamless. Wait. Okay, so what I want to say was the arcagoes blow up. It seems to have been contained. There's never one cockroach in the kitchen.

Yes. People thought it probably could have been long-term capital management light. There's no liquidity in this. The system is not fragile. Maybe I shouldn't say that. That's tempting the gods. But this thing went down, billions of dollars in leverage, and the system didn't blink. I remain very impressed by how speculation has been able to jump from one thing to another thing.

You just got to tip your cap to the market weighted indexes. Well, that's part of it. But again, these traders and people who are promoting this stuff and jumping in, they go from GameStop, and then we leave GameStop, and then it goes to something else. and then it's Dogecoin and then it's Ethereum, whatever it is. It just... This is our Independence Day theory. Yes. Right?

They go from planet to planet sucking the resources drying, and then they move on. So we had a little shindig this weekend. We had a few friends over... Shindig. Come on. We're bringing back old words. I swear to God, I did not bring it up. Lumber prices was a topic of conversation.

People talking about friends buying homes and how crazy it is. I spoke lumber this weekend with the civilian. This is one of those things where... When we first saw the rise, I don't remember when it was in the summer, June, July, without knowing anything about the lumber market, I would have said, okay, this is a crazy demand thing, spike, and those numbers have to come back in. Don't worry, those numbers come back. And, of course, they haven't.

They've only gone higher. Fortune had a piece on this about how, like, why can't they just produce more? And it's like, they only have so much capacity. They don't have confidence in the fact that these future sales are going to remain as high as they are. And so Bespoke had this graph that showed using basic as, assumptions, current lumber prices imply a cost of lumber alone north of 40K for 2,000 square foot home. Historically, that number has been between 5 and 15K. This is another part of the real estate question I've received from people. So I actually think because you're seeing these all

cash offers and people bidding way over asking, one way to skirt that issue, build a new home. You get the price set in advance. You don't have to negotiate with anyone. You don't have to worry about, like, are they going to accept my offer or not? Are there inspections to deal with? Obviously, that requires you actually have to find a new home or land or a place to be built, which is not easy these days. But if you did, this is a part that throws a wrench into it. So I've had conversations with people in the past few weeks saying, I want to build. I have land. Should I wait? So this is another thing. This is a very tough one because from all the dynamics I'm learning about the lumber market as well, hear me out. As I'm like learning more about this,

I don't think it's a foregone conclusion that costs are all of a sudden going to go back to where they were pre-pendemic. I think that might be gone for a long time. I feel like this is not, well, it depends. This is not should I buy a house type of question. It should I build. For example, somebody I know is put an extension on their house and they're going to wait because lumber prices, I think that's like a reasonable thing, right? If you're already in a house and you want to wait to do work, I don't know that they're going to come back down to where they were, but you would really buy right now. Let's say that you own a plot of land that you've won for a while. He wanted to build a dream house. Do you say, let's put it off for 12 months because

this is just not happening right now. Here's an anecdotal example. I talked to a builder in recent weeks. I told you this offline. 50 to 60 homes ready to go. If they put them for sale tomorrow, all 60 would sell immediately. They can't price them because of the lumber costs are too uncertain and they can't build 60 homes at once because they're so busy building homes elsewhere. He said they can only sell one to two a month because they don't want to give people a price for a home and then it goes up because lumber prices rise further or it goes down because they finally roll over. So it's like slowing the whole process of supply. But let's say you've been wanting to build your dream home. How long would you wait then? Are you like following lumber prices every day?

I've a good answer for you. It depends how much money you have. Let me just roll this out for you. Okay. So if you're doing a mortgage, and obviously I'm not saying everyone can afford this, but let's say every $10,000 on a home price at a 30 year fixed rate mortgage at 3% interest, that's $42 a month extra monthly payment. So obviously that $35,000, 5,000, whatever bespoke said, that's tough to eat. That's also more taxes. So that would be like 150 bucks a month. So I'm just saying if you're ready to go for your dream home, you're getting pressure from all sides, from your spouse, your kids, whoever, to build this home, I think that's the conversation you're having yourself is, is it worth it to just go and just do it? Or am I really

going to try to wait and time it perfectly for lumber prices to fall in 6, 12, 18 months? Fair. If it's in the mortgage, then that's a different calculation than doing something to your current home, right? Because that's out of pocket. Yeah. A mortgage is still out of pocket, because let's say it's an extra $40,000. Then you've got to come up with an extra 10 grand down payment. The monthly payment does no big deal to your, you know, it's a couple of bucks. But the down payment, if you're already stretching because home prices are so high, it's tough. This is just like one more wrench in this book that people don't need. Here's again, why people have it harder than people did in the past. So I'm doing some

research. I was reading David Halberstam's book, the 50s because he had a whole chapter in the 50s how housing in the suburbs went nuts. And everyone moved from the cities and people came back from the war and built houses. And they were building all these new homes and they went crazy and built a ton of houses. He said basically every house back then because the home builders were making so much money. They were just doing these prefab homes. They all up to the same. You know, you had these neighborhoods that the houses all looked the same. Zero down or $1 down payments for basically 75% of these suburban homes back then, they said in the 50s. They were just giving these houses away, basically. Because they had all the government GI Bill stuff. Anyway, another reason

young people have it had it harder today. If you're trying to sell your house, here's one from Zillow thought was interesting. Houses with family friendly features. So it could be a sandbox, a playground. Hang on. Hang on. Who has a sandbox? I've seen houses the sandboxes before. You would never want your kid to have that because just constantly covered in sand. That's like the worst. All right. Where I live, there's no room for a sandbox. Our plots of land in my neighborhood are 60 by 100. There's no room for a sandbox. All requires is four logs and then you put some sand in it. All right. Yeah. I understand it. But they're saying that these houses, listings mentioning a backyard sold

5.2 days faster than expected. Homes featuring a sandbox were four and a half days quicker and a playground two and a half more days quicker. They're kind of saying all this a fenced backyard, a cul-de-sac, all this stuff. It's like just a big suburban thing. And young people with families driving this. I think that's kind of what they're showing. Okay. I got a cold call today. Are you the owner of Blank, Blank, blank, blank? Yes. Are you looking to sell your house? No, but thanks for the call. Realtor or nor a person? It sounded like realtor.

I'm going to cold called to buy a house. Did you ask me if they pay in Ethereum? I should have. Okay. I should have asked what they're doing for title insurance. That could assuade me. This supply, demand, and balance, I get back to what. I'm doing some work now in like the number of homes built.

And so in the 70s, we were building like 17 million homes for the whole decade. 2010, it was down to like 10 million. We had 200 million people, let's call it in the country back then. I would say, don't you have to adjust for like homebuyers? So now we have 330 million people. So we have way more people and we're building, fewer homes. This whole imbalance to me just seems like it's way out of whack or people are going to be buying older homes for a while. So maybe lumber was too cheap? Maybe, yeah, maybe that's

part of it. Kind of like wages were too low for some people. Cold de sac. Cold de sac is three words. What does that stand for? What does that even mean? You don't know what a call. No, I know what it means, but. It sounds like French to me. Where do that come from? All right. I've always just kind of, that's the word, right? Oh, here you go. A vessel, tube, or sack. That's an interesting definition. A blind diverticulum or pouch?

Okay. Sounds like a medical term. All right. That's it. Oh, this is interesting. There's an article in the Wall Street Journal. The mortgage boom is fading. Maybe a little bit misleading, but it sounds like we pulled forward a lot of demand for mortgages in 2020.

Right. And a lot of it, I think, was refinancing, as we did with everything else. So this year, total originations are expected to fall to $3.3 trillion, a 14% decline. But that is still one of the best years on record. But what's interesting is that if you thought, like, oh, I'm going to buy some mortgage origination companies. I'm going to get into that game. Right. To play the housing boom. Yeah, these talks are getting wrecked. Right. Rocket companies, UWM Holdings, Loan Depot. Rockets down almost 60%. It's wild. So he was. Here's why. So there's a lot of competition. So the good news for borrowers is that lenders are now vying for customers by lowering the rates they charge. That translates into lower

profits for lenders. So I forget what the article said, one of these companies, margins are down just across the board because they are competing. Yeah, this is crazy. So even though people think rates have to rise to, like, shut off the valve on housing prices, these mortgage originators want rates to fall to get more people to either refinance or buy home and take a loan. That's crazy. Here's a question I wanted to put in here because we talk about this all the time. With the caveat that they're more volatile, why not invest? So if you're saving up for a down payment, this is, again, our most asked for a question probably. And I'm still working on creating the Ben and Michael ETF, ticker S-A-V-R or something, or D-O-W-N. Why not invest your down payment

in residential real estate, taking out more risk for saving for a down payment, arguably a geographically diversified pure real estate portfolio, or you could do something like fund-rise. So basically saying, why not invest in real estate with your down payment money? And that way you're tracking the market a little more closely. Yeah, until the mortgage read that you own, or the residential rate, I'm sorry, that you own, is down 15% and your specific neighborhood of home prices are up 13%. Yeah, there's no answer to this question, right? I thought that was...

Put it this way. I've heard worse ideas. Yeah, but that's when we say, okay, well, if real estate gets soft in my real estate holdings are down in my investments, well, I'm also making a lower down payment. So I think that's the idea, but again, yeah, there's no easy way to do this. How about this? Nobody's asking this question in a bare market. Yeah. Yeah, exactly. The stock market has become too easy. Crypto has become too easy. And people feel

like idiots for staying in cash, which I get. But a quick shakeout will definitely make this question stop from appearing in our inbox half a dozen times a week. FinTech Frank. Yeah. By the way, I think Josh was on this guy's podcast. Yeah, he was. I can't remember what it was called. I actually listened. So he said, I've seen some version of this tweet for the last three or four months. He said, if you're not looking at defy, you're not going to make it in finance. It's going to completely redefined trading indexing, market making incentives, peer to peer lending. The list goes on. If you're a bank, FinTech, or trading firm doesn't have a DFI strategy, then it's screwed. I've heard this a lot. And Defi is this new decentralized finance thing that's going on.

I even found a research report from the St. Louis Fed talking about how basically their protocols and applications, you know, they verify all the transactions, the data is readily available to people to look at. It still kind of hurts my head to understand what it's all about. Here's like a use case, I guess. So this is that FTX place. They were the ones that. Sam Bankman-Fried, we talked about. He became a billionaire like 29 starting this FTX exchange. He created lumber futures on this crypto exchange, said it took about 12 hours lead time and about two hours of work. And now they had the first day, like $2 million in liquidity for lumber futures trading on this crypto network. The Uniswop creator was on the Odd Lots podcast last week.

Jim Bianca was talking about this, J.C. Parrots, it hurts my head. But I think the one thing that crypto people have done that I understand better than anything in this space, and I don't understand how all these things really work. It's just that they've created an incentive system to get this stuff up and running very fast and moving and provide liquidity. I mean, a lot of it is just like coins all the way down where this stuff is just using Ethereum to make more money on other coins or whatever. It's kind of just a way for people to get rich at the moment and trade and then lend and earn money on your other coins or whatever. But you're seeing more of this where people are saying, like, what if they're recreating the whole finance system? Right, right.

a nice counterbalance to all of this speculation, price, which is what we tend to talk about. Tyrone Ross did the other side of this, how it's actually like changing the system for the better. And I've been skeptical of this, but for example, a lot of the Bitcoin usage is like what's wrong with our system? Well, there's something's wrong. But by and large, the financial system functions pretty well. But not everybody has a stable financial system. So a lot of Bitcoin transactions are used outside of the United States.

A.C. How long does this still take to make a bank transfer payment? It still takes days. This stuff is going to be way to bring the fees down and they're probably going to. I'm sure they'll figure that eventually. Otherwise, it's a non-starter. But I just think once a company or a protocol or whatever you want to call it figures out a way for normal people to not have to understand this stuff and just make it easy for them. I think that's years and years and years away because we've been talking a lot about this as we've been trying to learn in our own time. oh my God, this is so overwhelming. It's like a new language.

How does a normal person, like we do this? But how does a normal person have time to learn about this thing and figure it out? And the answer is, you don't. Where do you even start? So Packy did a great post this morning called the Great Online Game, where he said, crypto is an asset class that rewards participation in the Great Online Game. The fastest way to understand what's legit and what's not and which coins people are going to buy in which they're going to ignore, is to spend time participating and learning online.

The right Discord or Twitter follow is a massive source of alpha. And that's cool for people like us, but that kind of explains it. It's people that are dedicating serious, serious time to the sort of thing to learn. Or money. They're just, like a lot of these VC firms are just throwing money at every one of these and hoping a few of them land and they work. And the other ones that go away won't matter as much. The other thing is we tend to mock the Doge and everything like that.

But there has been. some life-changing amounts of money being made by people that otherwise would never, ever, ever, ever have done that in the stock market. Probably. No, 100%. Yes. I do come back to the fact that the majority of the people who have made a ton of money, though, are the people who are in technology who understand this and were already rich to begin with.

True, true, true. But there are people that have made life-changing amounts of money. Oh, for sure. Yes. And I'm not just talking about the Silicon Valley people. I'm talking about, like, ordinary people who, $20,000 will literally change things for them. Everything in crypto is over the last 10 or 12 years, whenever 13, 14 years, they created $2 trillion

out of nothing, out of a computer. It's almost like we don't pay enough attention to how crazy that is. So rewriting the financial system, if this is the case and all of the banks are just asleep at the wheel and in 10 years like things are run this way, that would be something. And I think we're watching it right now. But Bianco was talking about, because we always say like, where's the beef? what's the use case? Bianco is talking to JC about how in the future, companies might pay you to watch their commercials on YouTube, for example. They pay a company token, tokens are distributed

directly to you for watching. What was the other example that he gave of how this could play itself out in the real world? I'm just picturing commercial farms where people are paid to watch commercials on behalf of someone else. But I think what most people are saying that don't want to like go too far on a limb is, listen, we don't know what that great application is going to be. We just know that there's a lot of smart people and a lot of money going into this and it's hard for us to predict exactly what is going to be that killer feature or that's the thing like I know a lot of people have said well this decentralized stuff is all going to disrupt Amazon and Apple and Facebook and all these tech platforms I would much rather put my money on it's going to disrupt the financial

system who still is making brick and mortar banks those places are going to be way easier to disrupt I think then Amazon and Google and such that'd be my way to look at this yeah we're give a plug. There's a new app. I don't know if it's new. It's new to us. There's an app called hi-ho. Is that one word? Is there a hyphen? Hi-ho. Yeah, H-I-H-O. And we are not early adopters of anything. We get pitches like this occasionally saying, hey, try this out. What do you help bring it to your audience? And we're kind of always in a wait and see mode. But we got a demo of this last week. And we thought, oh, this is perfect for our audience. So it's an app. It's a social media app where it's all done on video and it's almost like doing a FaceTime. So Michael or I will go

out and put out a question to someone. And maybe what we'll try to do is on a weekly basis, we'll try to do a Q&A. A lot of people in our listener questions, they put in very personal information and want to remain anonymous, which is fine. But if you have a more general question, we're going to put it out there and we could have you record yourself answering the question. And then we could reply to you another, it's almost like you're doing a FaceTime call, but it's a series of videos. It's almost one of those things where you have to kind of see it to understand it, but it's very cool. And we can put out random questions from the show and you guys can come reply on that through a video. And we could potentially use that on the show.

It actually would be nice to put some faces to names because we get a lot of repeat emails. Can people just ask us a question or does it have to be a reply to one of our threads? There's a button that said you can start a conversation. So if you go to this, hi-ho, download the app. Follow animal spirits. Find animal spirits on there. And we already put a question on there to try it out. So check it out when this comes out. We'll maybe put another one or two up there and we'll try to do one or two of these a week where you can reply to the question we ask and then hi-ho will then go and take some of the best answers and put them into this social media thing for us so we can share them and kind of do a mash-up of the video of all

the answers to these questions. It's a pretty cool app. Yeah. I'll listen to one listener question because it's getting late. I'm struggling to reconcile two different points that were recently discussed, one on the compound shown on the other animal spirits regarding recessions and the importance of bonds as part of your stock bond portfolio. If you have a longer time horizon, we think long-term recessions in the stock market are to some extent a relic of the due to new Fed interventions in times of trouble. I don't think that. I know.

Just why invest in bonds at all? Wouldn't the bounce back of stocks outweigh any lost savings on the downside by holding bonds? I feel the only way to make bonds work in the new normal would be to time the market, which is universal no-no. Interested to hear your thoughts on this. The reason to own bonds is because most people, like most, most, most all of us, cannot take the full brunt of the volatility of the stock market. That's why.

Yeah, bonds are an emotional hedge. Also, we've talked about the fact that could bear markets and receipts, recessions be different now that they've figured out you can give people money. Yes, they could be. They could be. No, but I think if this is the case, even if we do start doing this and some people are like rooting for recession, so financial assets do better, I think all that does is make the markets more volatile because I think that introduces things like flash crashes. And I think you could have bare markets where for no reason at all. It's like a smaller version of the archegos blowup where things are going too well and people are too over leveraged and taking too much risk. So I think you could

actually see more volatility, even if you don't get extended bare markets like we had in the past. I think you could see more blowups and like actually more 20 to 30 percent crashes in a very short period of time than like a long drawn out thing. So I think you could actually see more macro instability, which actually makes the case where bonds even stronger a little bit to have that stabilizer and diversifier. That's how I feel. Without bonds, you can't rebalance. There you go. You have to have something to put your stocks in. All right. Any recommendations? Yes, I have a few. Jonathan recommended this. me, a colleague we work with. Treasure of the Sierra Madre,

1984 Humphrey Bogart, HBO Max. This movie was slow at times, sometimes even boring, but I really, really liked it because it is a case study on greed and human nature, even though obviously it's dated as a 1948 film. I wanted to see what happened next. Okay. I just can't watch movies that or that old, sorry. Have you tried? You're never going to pull me into one of those. I just can't do it. I've tried. Have you tried? I haven't. All right. You haven't even tried?

What's your best, like, pre-1960s movie you watched? Casablanca. Casablanca. Yes. I'll try Casablanca. How's that sound? Just try it. Vanilla Sky, I watched.

I didn't realize that was a Cameron Crowe movie. Oh, geez, I don't think I did either. I can't believe you've never watched that. I really liked it. It was a disturbing watch. That's the kind of movie that stays with you for a few days after you keep thinking about it. I'm probably not going to revisit it. In fact, I'm definitely never going to rewatch this movie.

But it also reminded me, I forgot that Tom Cruise and Pinelli B. Cruz was the thing. Oh, yeah, that's right. I forgot about it, too. Cameron Diaz plays a really good psycho ex-girlfriend in that movie, right? She was tremendous. I gave Vanilla Sky 7-4-75 range. Fair? Yeah, I think that's fair.

It's in the sevens for sure. And I also watched Adventureland. Jesse Eisenberg? Movies got a great cast. Kristen Stewart. Kristen Wig? Why was she in that? Yeah, Bill Hater, Ryan Reynolds.

of course. Oh, the guy from, I forgot his name, Martin something. Maybe the guy from Silicon Valley. Yeah, Martin Star. Yeah, Martin Star. What's his name in Silicon Valley? I can't remember. I gave up him on that.

That's a Ben movie right there, Adventureland. Seven, six. Okay, I'm surprised. You liked it that much. Okay. I really did. You know why? I got a thing for Jesse Eisenberg.

Yeah, he's pretty good. Interestingly, this is his second mid-1980s movie that I really liked. It takes place in 1987. And it's just, what's the story? It's just an adolescent, finding love going to college, living, just about life. Yeah, high school, college, summer jobs. Yeah, the other one was the squid and the whale, which I love that movie.

I didn't know that was in the 80s. Yeah, that's a good one. My random book I've been reading lately is called The Honey Bee Democracy by Thomas Steely. This was a Michael Movison recommendation on some podcast. Never heard of it. It's about how bees work together and teamwork. And the craziest thing is these guys who figured out how to study bees in like the 40s, 50s and 60s. And they figured out that when a bee goes and finds,

a place to do what they do. Honeycomb? Yeah, they come back and they do a dance. And they figured out when these bees dance, what they're doing is they're creating a map for the other bees to find this. Great spot to do this thing. The fact that these guys did all this stuff is kind of mind-blowing. It's kind of a dense book, but really interesting.

Sticking with insects. Favorite new show by far, biggest surprise of the year, Mosquito Coast on Apple Plus. I saw some CBS morning show a couple weeks ago with Justin, Thoreau. He's the star of it. You're a big Justin Thoreau guy. Yeah, he's not bad. This show is really, really good. It's got NSA stuff. It's got fake identity. It's running from the law. The first two episodes, my wife and I'm like, holy cow, this is actually really good. Way better than we thought it would be. Two episodes in. Are you still watching Mayor Vistown? Yeah, I like it. Still good? Yeah, I'm three episodes in. All right. One more. Are we watched Training Day this weekend? Hey, I did that a few weeks

ago. Is Denzel in that movie as Alonzo, the most intimidated movie character of all time? When he tells Ethan Hawke, the rookie cop, you're going to smoke this PCP, and he does it. Like, I feel like if I was in that situation, as a non-drug user, I'm smoking that. If he tells me to do it, I would do it. So I've tried to think of, not like most scary, but who's the most intimidating movie character of all time? He has to be one of them. He was so good.

And so here's what I came up with. Debo from Friday. Yeah, ice could be the crap out of him. But Ethan Hawk takes down Alonzo at the end of training day. Anton Chaguer from No Country for Old Men. He's very intimidating, just how slow he is. What was that, like, air gun in that movie? What was that thing?

That's how they killed cows, remember? Oh. That movie has one of the most disappointing endings of all time for me. That is the greatest movie with the worst ending I could ever come up with, like the combination of, I hated the end of that movie, hated it with a passion. Do you remember how it just kind of ended? I don't remember. Can I confess something?

Tom Cruise might have the greatest movie career of all time. Of course he does. I was thinking about that after watching Vanilla Sky just going through his catalog. Yeah, that's obvious. Minus Top Gun. Yeah, okay. All right, what do we got Friday? Titan Invest.

We talked to them before. We'll hash out the growth stock stuff, see what they think. Animal Spiritspod, gmail.com. Remember, try that hi-ho app. This is something, we have no affiliation of the place. We're just going to try it out because we think it could work for our audience. So download it, give us a shot, answer some of our questions. Michael's first question was about Dogecoin.

first question. It was so boomery. I was like, hi, guys. Not bad. All right. We'll see you on Friday.